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Employers in India are required to deduct TDS (tax deducted at source) from their employees’ salaries and deposit the deducted amount to the TDS portal every month. That’s why employers require their employees to submit income tax declarations to calculate the amount to be deducted.
At the beginning of the financial year, every salaried professional must submit an income tax declaration to be eligible for tax exemptions and rebates. This declaration consists of information outlining the tax-saving investments that they plan on making throughout the year.
Income Tax Declaration for Salaried Professionals
Employees can save significantly on tax saving components, depending on their salary breakup and chosen tax regime. Investments can contribute towards tax savings under both regimes. To utilize it, you must declare your planned investment amounts so that your employer can adjust their monthly IT deductions accordingly. If you have paid advance taxes, that can also be adjusted by reducing the deductions, given that sufficient documentation is provided.
Here’s a glance at the elements that can be leveraged to save on taxes:
1. Under the Old Regime
The Old Tax Regime can help you save on taxes under components listed under Section 80. These include exemptions on:
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Equity Linked Saving Schemes (ELSS)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Savings Certificates (NSC)
- Employees Provident Fund (EPF)
- Medical insurance
- Loan payments
- Interest on Savings account
- Interest on home loan
- Interest on education loan
2. Under the New Regime
Although the New Tax Regime doesn’t have as many exemptions, you can still get exemptions. These exemptions can be on:
- National Pension Schemes (NPS) withdrawals
- Interest on EPF/ Post Office Savings Accounts
- Employer contributions to EPF and NPS
- Gratuity
- Life Insurance Maturity
- Long Term Capital Gains (LTCG)
- Voluntary Retirement Scheme (VRS) payments
Investment Proof Submission: Form 12BB
Form 12BB serves as a self-declaration of investments and other tax-saving components. It mostly includes the details of your investments and expenses throughout the financial year that you wish to claim as deductions. It also includes your PAN number, IT deductions and salary details.
You must download the form from the income tax portal and hand it over to your employer after filling in the relevant details. The form must be submitted towards the end of the year. The exact due date for submitting investment proofs differ from organization to organization. Most employers usually ask for it during December/ January.
What Qualifies as Investment Proof for Income Tax Declaration
Along with form 12BB, you also need to provide sufficient documentation for your claims. That’s why it’s considered good practice to preserve the invoices and payment proof of these expenses. The proofs also need to be self-attested with the same signature as PAN records.
Here are some common documents you can submit as investment proof:
- Home rent payment records
- PPF deposit receipt
- Loan payment receipts and interest certificates
- Insurance premium receipts
- Medical expense proofs
- ELSS investment certificate
- Records of interest earned on FD/RD
Difference in Income Tax Declaration and Investment Proof: What to Do?
Since the income tax declaration at the beginning of the year is only a roadmap of proposed investment, it is possible to have differences between the declarations and proof. Two situations can occur out of this:
1. When the Invested Amount is More Than the Declared Amount
In cases where you’ve invested more than the amount you had declared at the beginning of the year then your tax liability gets reduced. You can apply for a tax refund while filing for your income tax returns for that financial year. You can also ask your employer to adjust the TDS deductions accordingly by deducting lower amounts for the final months of the financial year.
2. When the Invested Amount is Less Than the Declared Amount
If you have invested less than the declared amount at the beginning of the fiscal year, your employer would need to calculate your taxable income again. In certain cases, your employer can increase the amount of monthly TDS deductions to compensate for the earlier deductions that were lower, for the remaining months of the financial year.
If you’re declared amount is the same as your invested amount, then there won’t be any changes in your income tax deductions. Consequently, you won’t qualify for any tax refunds either.
What to Do When You Miss the Income Tax Proof Deadline
It’s possible to miss your income tax investment proof submission deadline due to reasons like administrative errors, change in employment, incorrect notifications and personal circumstances. But even then, it’s possible to claim any overpaid tax. You can simply file for an Income Tax Return (ITR), providing the necessary proof of investments.
In case you may have missed mentioning any single tax saving component in your income tax declaration form, you can follow the same process and file for an ITR. This method also qualifies for any investments made after submitting your investment proof for that financial year.
Tips for a Smooth Income Tax Investment Proof Submission Process
While the process for submitting investment proof is fairly straightforward, it can be exhausting to compile all the necessary documentation. And if any discrepancies are found during verification, it can increase your tax liability and in the worst-case scenario, your declaration can be rejected as well. Here are some things you can do ensure a smooth investment proof submission process:
- Ensure all the necessary documentation is up-to-date and is under your name.
- Use your PAN signature to self-attest the documents.
- Maintain a proof submission file and organize all the invoices and certificates received throughout the year.
- Make sure your proof amounts match the claim amounts.
- Your proofs should also contain details like PAN, maturity details (for fixed deposits) or portfolio value (for investments).
- Keep copies of all your invoices, either digital or printed form, for easy access in case of any inquiries.
- Submit your investment proofs well before time to reduce chances of error caused by last minute urgency.
Summing up
Navigating the numerous intricacies of declaring income taxes and submitting investment proofs can seem overwhelming. But it can also help you substantially reduce your tax liability. With proper financial planning and organization, you can maximize your tax savings too.
Employers can consider implementing a payroll management software to make it easier for their employees to declare taxes. The one by Akrivia HCM comes with features that allow employees to submit their IT declarations and their select their chosen tax regime on the portal itself. This ensures secure data management without compromising on efficiency.
What’s your best tax saving tip? Let us know in the comments!
